Well on its way to new territories beyond the gaming market, U.S. chipmaker Nvidia suffered a double-digit dive last quarter after a year of highs.
Cloud computing and the proliferation of specialised computing tasks like AI, along with other developments, have given rise to a growing market for accelerator chips, which speed up specific types of calculations. A specialist in graphics processing units (GPUs), Silicon Valley firm Nvidia emerged as a leader last year as it diversified beyond its core market of gaming, developing specialised versions of its GPUs for numerous other applications. By October its share price peaked.
The new high proved short-lived, as Nvidia reported alarming results in February: Revenues were down by 24% from the same period last year, and profits had plummeted by 49%. The biggest drop was in the gaming division, where revenues fell by 45% in the latest quarter compared with the year before. The company still makes most of its $11.7 billion in annual revenues from the gaming market. It also sell chips to cryptocurrency miners, where the bubble has burst.
Another trouble spot for the chipmaker is with “Turing”, its eighth generation of graphics chips, which thus far has fallen short of expectations. The new chips support an advanced graphics technique called ray-tracing. While ray-tracing creates more realistic lighting in games, it requires massive amounts of computing power; as a result it is not often used in games, and only a few big titles support it. Apart from this feature, the chips offer some performance improvements. Nvidia may have become overconfident with their pricing, which skyrocketed as demand from cryptocurrency miners soared.
“Nvidia’s terrible quarter will probably prove to be a blip,” The Economist opines. Nearly all of its non-gaming divisions grew in 2018, and the company expects revenues to recover. Demand from cloud computing and AI is likely to continue growing as these technologies expand. But advancing further in these areas will pit Nvidia against more competitors – such as Intel, as well as many of its own clients, such as Google and Microsoft, which are also getting involved in designing chips. In February Facebook announced an AI chip. Nvidia will need to strategize against new adversaries while still keeping its core customers close.